China’s crackdown on various industries has destroyed Chinese stocks in the US. Everyone is panicking about the things I warned about when it comes to investment in China, a communist regime – the arbitrary enforcement of laws, corruption, a lack of transparency and all that.
And when I say everyone, I mean everybody. And if the person has an opinion about Chinese stocks, then you should sell them and run for the hills.
As the collapse of these stocks has accelerated, there are margin calls, and that forced liquidation is working through the markets on Tuesday, not only in Chinese stocks, but also in some US stocks. The crappiest of the small-cap tech stocks I’ve long warned about are crashing.
Conflicting bet wedden
I am going to make a contrarian bet amid this forced sell action in Chinese stocks by nibbling a little bit of Tencent TCEHY,
and the iShares MSCI China ETF MCHI,
for a shorter term trade. And I buy back some of the JD.com JD,
that we had sold at a higher level in recent months. Be careful out there, as always, because if Chinese stocks continue to tumble, the action of those names could accelerate their impact in US markets.
One of the big stories that the market has moved from the Blow-Off Top stage to somewhere on the other side of the Bubble-Blowing Bull Market for most stocks is how they react to news of new fundraisers. In January and February and in March of this year, whenever a company would make an announcement that they were selling securities to raise money for the balance sheet to invest in their company, its stock would rise on the news.
That is no longer the case, as Virgin Galactic SPCE,
and many others who have raised money have seen their shares collapse in the news. The reaction reflects the continued decline in thousands of small-cap stocks, most of which are down 70% or more from their highs earlier this year.
In the meantime, I want to keep reminding you that there are literally hundreds of stocks that have gone public in the past two years that will go to zero. Some will be fraudulent. Some will be unlucky and just fail.
Doesn’t matter why – they will cost people billions in the coming months and years. There is a lot of waste in the markets. I took the photo below when describing how I think there is a lot of “trash” in the stock markets and in the crypto exchanges during a road trip to White Sands in New Mexico last weekend and when I happened to look out the window at the passing train with graffiti on it:
Earnings as an indicator
Meanwhile, we have entered earnings season and the response to Tesla’s TSLA,
report Monday will prove either an outlier or a harbinger of things to come for most tech stocks.
The report, released after the market closed Monday, was fine, even stronger than expected. While CEO Elon Musk’s comment — who said he won’t be appearing on most Tesla revenue calls from now on and which I’m probably fine with because he has plenty of other outlets to communicate with us — focused on supply chain issues. delaying the company because I’m getting a Cybertruck at the end of this year, maybe that’s what the market doesn’t like.
Or perhaps, as with the stock-raising action I mentioned above, the decline in Tesla’s stock is more indicative of a broader market pullback than Tesla’s earnings report itself.
We don’t have to wait long to find out which one it is, like Apple AAPL,
and hundreds of other companies are reporting profits this week.
In the hedge fund, I still have a lot of short hedges and a lot of puts on the sheets, but as you would expect, I’m hedging some of the shorts and selling some of the puts in panicked action Tuesday.
Aside from the aforementioned snacks, I’m tight on the personal account, as is usually the case lately. I see some bargains starting to materialize as the broad slump – can we call a 70% drop over a four month period for thousands of small-cap technology stocks a “crash”? Yes, I think we can – has accelerated lately.
Stay tuned. I think we will buy new names. I will be sending out Trade Alerts in the coming days and weeks. No rush, as always.
We can patiently sift through the rubble (even if I plan on shorting many of the most crappy small-cap tech stocks for a while longer). Don’t let FOMO, MOMO, YOLO, Blow-Off Top Phases, Sector Crashes or anything else distract you from the mission of building wealth and minimizing risks over many years.
Cody Willard is a columnist for MarketWatch and editor of the Revolution Investing newsletter. Willard or his investment firm may own or intend to own the securities listed in this column.